BIM60365 - Land transactions: ICTA88/S776: Common situations: 'Slice of the action' contracts: Restriction of charge: Example

In a slice of the action contract, the effect of ICTA88/S776 (7) can be significant. Normally, it removes an amount equal to the value of the land at the first intention date from the charge to Income Tax under Schedule D Case VI (see BIM60360).

For example, where:

• the initial fixed payment is £1m,
• the total contingent payments are £0.5m, and
• the first intention date value is £1.2m,

the amount excluded by ICTA88/S776 (7) is £1.2m and the amount within the charge under ICTA88/S776 is £0.3m: the total payments received (£1.5m) less the first intention date value (£1.2m).

If, exceptionally, the first intention date value is less than the fixed initial payment, then the amount within Section 776 is the entirety of the contingent payments. The fixed initial payment is not within the ICTA88/S776 since it is not contingent upon the development and does not result in an avoidance of income tax (see BIM60315).